The mandate of the Ontario Capital Markets Modernization Taskforce, launched in February, is “to provide policy recommendations on critical areas such as driving competitiveness, regulatory structure, efficient regulation and investor protection.”
The task force has taken on a challenging mission to overhaul the regulatory system in Ontario and publish a consultation report this summer and a final report in the fall. But the optimal approach of the task force should extend beyond simply reviewing the technical provisions in the Ontario Securities Act, and include the proposals and initiatives flowing from the provincial securities commissions, the CSA and self-regulators. If the task force were to undertake such a comprehensive review process, it could improve on these proposals and increase the likelihood of their implementation.
In taking a broad approach, the task force is attempting to align securities regulations in Ontario with the structure and characteristics of the Ontario economy and capital markets. This approach recognizes the regulatory system’s purpose is not just to safeguard investors and confidence, but to promote capital formation for small businesses in order to boost employment and economic growth in the province.
The Ontario Securities Commission and several other securities commissions have suggested widening investor participation in exempt markets through changes to the “accredited investor” definition and more flexible exempt financing options. These suggestions would deepen the exempt market and lower the cost of capital for small issuers. Further, in March 2018, the CSA published a notice on comprehensive proposals to reduce the regulatory burden for reporting issuers by placing more emphasis on continuous disclosure requirements than new offerings.
The Ontario task force could support suggested measures to ease the burden on small business public offerings by amalgamating the Annual Information Form (AIF), Management’s Discussion and Analysis (MD&A) and financial statements into one form. Further, the CSA, in a recent consultation paper, proposed the “access equals delivery” model for prospectuses, which could extend to continuous disclosure documents to reduce the burden and cost on underwriters and large and small issuers.
Also, the Alberta Securities Commission set out last June some good suggestions to promote business startups and emerging companies in venture markets. These suggestions merit the attention of the Ontario task force, as the small dealers are critical to the merchant banking of growing small private businesses and to the intermediation of small listed companies for IPOs and secondary offerings, and research and trading.
The consolidation of self-regulation, by combining IIROC and the MFDA, is a logical step to increase cost savings and deliver efficiencies to clients through advisors on a single registrant platform. The task force should contribute its position on a consolidated SRO platform.
Reducing the burden on new offerings in public markets, widening and deepening exempt market financings and consolidating the SRO platform will lower operating costs for small dealers and stimulate capital-raising for small businesses in public and private markets, and encourage investor participation in venture markets.
If the Ontario task force supports and contributes to the efforts of the CSA, individual securities commissions and governments, it will limit the risk any of these measures falling victim to inertia. It will also increase the effectiveness of the proposed initiatives and drive consensus among the regulators. Moreover, the task force can recommend initiatives beyond securities regulation, such as regulations governing investment category thresholds for investment funds or even investment tax incentives.
In the current landscape of economic unpredictability and harsh circumstances for businesses — particularly for small business — the task force could prove an immensely valuable tool to support regulatory reform to encourage small business and capital formation and to promote economic growth when Ontario needs it most.